The Washington Supreme Court, responding to a certified question from the Ninth Circuit, found that the term “collapse” in an insurance policy was ambiguous and under Washington law, means “substantial impairment of the structural integrity.”

An engineer informed the Queen Anne Park Home Owner’s Association (“HOA”) that there was hidden decay in some shear walls (plywood/gypsum sheathings), which impaired the walls’ ability to resist lateral loads.  The HOA filed a claim with State Farm Fire and Casualty Company (“State Farm”). The policy covered “accidental direct physical loss to covered property,” including losses “involving collapse of a building or any part of a building caused only by one or more of the following:…(2) hidden decay.” However, “collapse does not include settling, cracking, shrinking, bulging, or expansion.” The policy did not otherwise define the term “collapse.” State Farm denied the HOA’s claim, concluding that “a loss involving collapse” had not occurred during the policy term.

The HOA filed suit, seeking declaratory relief and damages for breach of contract. The federal district court granted summary judgment in favor of State Farm. On appeal, the U.S. Court of Appeals for the Ninth Circuit certified a question of law to the Washington Supreme Court.

The Washington Supreme Court found that the undefined term “collapse” in the policy was an ambiguous term because it was susceptible to more than one reasonable interpretation, as demonstrated by the range of definitions adopted by various courts. The Washington Supreme Court agreed with the HOA’s asserted definition – “substantial impairment of structural integrity” – because it was reasonable and favorable to the insured. However, the court did specify that “substantial impairment” means an impairment so severe as to materially impair a building’s ability to remain upright such that it renders all or part of the building unfit for its function or unsafe in a manner that is more than mere settling, cracking, shrinkage, bulging, or expansion.

Judge Mary E. Fairhurst dissented, stating that the majority expanded the meaning of “collapse” beyond its ordinary definition: when a building falls or breaks down completely. Judge Fairhurst contended that the term was not ambiguous and that the court should have adopted the dictionary definition, as the average purchaser would understand it: “By interpreting ‘collapse’ as ‘substantial impairment of structural integrity,’ the majority is turning a simple word into an imprecise legal standard.” Queen Anne Park Homeowners Ass’n v. State Farm Fire & Cas. Co., No. 90651-3 (Wash. Jun. 18, 2015)